Coal India benchmarks premium coal to foreign rates

Coal India benchmarks premium coal to foreign rates
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First Published: Fri, Jun 04 2010. 03 50 PM IST
Updated: Fri, Jun 04 2010. 03 50 PM IST
New Delhi: Coal India Ltd, the world’s largest coal miner, will increasingly benchmark its premium grade to world prices, lifting its revenues and another small step towards energy pricing deregulation.
The state-owned firm, which produced 87% of India’s 531 million tonnes of coal output in 2009-10, discounts most of its prices against international grades as the government wants to keep power costs down and encourage industrial growth.
But the government has been easing back on energy price controls, last month doubling the price of natural gas pumped by state firms.
“A decision has already been taken that premium coal should be priced on import parity basis. That is, import price minus 15%,” A.K. Sarkar, director of marketing, told Reuters.
Sarkar said Coal India, which earned Rs52,090 crore ($11.17 billion) in 2009-10, discounts prices by 50-60% over international rates.
The landed cost of high-grade coal from Indonesia on India’s east coast is around $50 a tonne, according to traders.
He said some coal sold by its unit, Eastern Coalfields, has been based on the new formula since October under deals signed with some government-owned utilities.
“This will definitely improve the top line and bottom line of the company substantially,” Pawan Burde, vice president at PINC Research, said.
“But it will also raise power costs and that will be bad for the economy. So there might be opposition to this within the government itself. It cant have Coal India benefitting at the cost of consumers.”
Coal India, which has led India’s hunt for coal assets overseas, is set to sell a 10% stake in an initial public offering by August that could raise roughly $2.7 billion, the biggest share sale by a state firm this year.
Process to go on
Analysts say large scale imports of coal to feed energy-hungry India and sector reforms on the government’s agenda were paving the way for bringing prices in line with world markets, but the process would be slow.
“It won’t be possible to benchmark coal across the board as most of the internationally traded coal is of high grades,” said Sanjeev Panda, analyst at Karvy Stockbroking in Hyderabad.
“But it is going to happen over a period of time. Maybe it will take a couple of years.”
On Wednesday, a Press Trust of India report published in the Financial Express quoted coal minister Sriprakash Jaiswal as saying that domestic coal will be brought on par with global rates.
Sarkar said the benchmarking process would be expanded, but did not give a timeframe. “We will take it forward. We are already in dialogue with some of our companies,” he said.
The international benchmark would apply to coal of 5,500 kilocalories per kg and above, the premium grade coal in India that comprises less than 10% of the country’s total coal production, Sarkar said.
India, which produces only a small quantity of premium grade coal, imports mainly from Indonesia and South Africa.
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First Published: Fri, Jun 04 2010. 03 50 PM IST
More Topics: Coal India Ltd | Coal | Power | Miner | IPOs |